Grundel v. Bank of Craig

• Decision Date: 07 October 1974
• Docket Number: No. KCD,KCD
• Parties: Russell GRUNDEL, Sr., and Russell Grundel, Jr., Respondents, v. BANK OF CRAIG, a corporation, Appellant. 26427.
• Court: Missouri Court of Appeals

Page 177

515 S.W.2d 177

92 A.L.R.3d 762

Russell GRUNDEL, Sr., and Russell Grundel, Jr., Respondents, v. BANK OF CRAIG, a corporation, Appellant.

No. KCD 26427.

Missouri Court of Appeals, Kansas City District.

Oct. 7, 1974.

Motion for Rehearing and/or Transfer Denied Nov. 4, 1974.

Rupert Usrey, Oregon (Eiser & Usrey, Oregon, of counsel), for appellant.

Bernard W. Gorman, Tarkio, for respondents.

Before PRITCHARD, P.J., and WASSERSTROM and SOMERVILLE, JJ.

PRITCHARD, Presiding Judge.

Appellant Bank undisputedly imposed this condition upon respondents: That it would be necessary, in order for the Bank to continue to extend credit, that a loan in the amount of $5,000.00 would have to be made to him at 8% interest, and that the proceeds of the loan would have to be deposited by him in a non-interest bearing certificate of deposit with the Bank. The Bank states in its brief that it does not contend that this transaction was proper, and concedes that the respondents 'are entitled to a refund of the interest paid on this $5,000.00 note.'

The evidence tends to show and the court found that the above condition was imposed in January, 1969. A $5,000.00 note dated July 25, 1969, was in evidence, but Russell Grundel, Jr., testified that it was a renewal of the original note for the same amount executed on January 25, 1969. The court found that during the course of dealings of respondents and the Bank after January 25, 1969, to May 21, 1971, a total of $3,125.76 interest was paid by respondents; and that they were entitled to recover twice the amount paid, or $6,251.52, under the usury statute, § 362.380(1), RSMo 1969, V.A.M.S. The principal issue is, then, whether the interest exacted by reason of the execution of the January, 1969, $5,000.00 note, and the retention by the Bank of its proceeds on a non-interest bearing certificate of deposit, can be applied only to it; or whether the excessive interest exacted extends to and taints with usury all subsequent borrowings of respondents.

The Bank contends that since, after some colloquy, the court found that $40,000.00 was borrowed by respondents, and, therefore, $3,125.76 interest on that amount at 8% per annum could not be usurious. It is of no consequence that the court found $40,000.00 to have been borrowed. By independent computation of the interest received by the Bank from January 25, 1969, to the time respondent ceased doing business with it, at 8% per annum (as all notes provide), the amount received was within about $15.00 of a total of 8% on all loans for the time each loan was outstanding. It follows that if the $645.56 interest received on the $5,000.00 note applies to subsequent borrowings over about 14 months time, the amounts of interest received exceeded the legal rate.

The rule is stated in 45 Am.Jur.2d, Interest and Usury, § 113, p. 100: 'If as a condition of making a loan the borrower is required to leave part of the money on deposit with the lender, the transaction is usurious if the interest paid for the loan amounts to more than legal interest on the sum actually available for the use of the borrower.' Annotation 14 A.L.R. 1422, 1423(II); see also 91 C.J.S. Usury § 35c., p. 615. In this case there is no question that the $5,000.00 proceeds placed on certificate of deposit was not ever available to respondent. Indeed the evidence shows that the Bank retained the certificate, and that when respondents desired to pay off their final indebtedness, it could not be found and the Bank demanded a bond from them. The certificate was later found by the Bank and respondents were able to close their dealings with it.

In Federal Mortgage Co. v. State Nat. Bank, 254 S.W. 1002 (Tex.Civ.App.1923), the cross-appellants McElvany owned certain lands with liens upon it, including one of H. P. Drought, Trustee. Federal Mortgage sought to take over the Drought lien but was unable to do so, and complained to the McElvanys that they were forced to hold a second lien which was forbidden by its charter. It was arranged that a $19,000.00 loan would be made, $15,000.00 of which would be paid Federal Mortgage for the balance of the McElvany loan and $4,000.00 would be paid to general agents and officers of the two companies as brokerage fees for trouble in handling the transaction and for consummating it. The McElvanys pleaded that the $4,000.00 included in the note was usurious, and this was found by the jury, and so held by the court on appeal, the acts of the agents being the acts of appellant in appropriating the $4,000.00 for themselves. 'Though it may not have been usurious in its inception, if appellants, by the use of the note and their construction of the contract, handled the transaction so as to net them more than 10 per cent for the use of their money, it thereby became usurious. Shear Co. v. Hall (Tex.Com.App.) 235 S.W. 195.' (254 S.W. 1005(3).) In Eldred v. Williamson, 33 Ill.App.2d 10, 178 N.E.2d 414(5) (1961), although the facts do not appear, it was said, 'Evidence was sufficient to support defense of usury in mortgage foreclosure action, predicated upon alleged lender's retention of sum as commission over and above legal rate of interest.' Williamson v. Clark, 120 So.2d 637 (Fla.App.1960), held that a mortgage broker, acting as the mortgagee's agent in arranging loans and exacting fees, had willfully and knowingly subjected the sums loaned to forfeiture under the usury statute. The facts were that upon execution of the mortgage and note, $12,854.70 was not credited to any account for the defendants, in contrast to the usual construction loan. 'Although 10% interest was charged from the time of execution, the funds were in no way distinguished, earmarked or set aside for the borrowers. Rather, the major part of these funds were retained by the lenders for their own use, and they were mingled with the other resources of these lenders.' In Penziner v. West American Finance Co., et al., 133 Cal.App. 578, 24 P.2d 501, 506(18--21), (1st Dist.1933), the court held that a demurrer was improperly sustained on this statement: '(B)ut if, as a condition of the loan, the borrower is required to leave part with the lender, interest in excess of the legal rate on sum actually available is usurious. Note, 12 A.L.R. 1422. Here, as the application provided that the loan was only available in progress installments, and the entire sum was not held subject to plaintiff's order, and an intent to evade the law is alleged, the above rule (39 Cyc. 959) is applicable.' (Brackets added.)

Two cases from North Carolina speak on the basic issue presented. In Planters' Nat. Bank v. Wysong & Miles Co., 177 N.C. 380, 99 S.E. 199 (1919), the bank sued for the amount of three notes due it, and the defendant admitted the execution of the notes, but alleged that each was one of a series and that they were usurious. Defendant asserted a counterclaim alleging that the three notes were renewals of notes from 1908 until 1917, and that various sums were borrowed by it in the interim and the bank retained 20% of the principal on all notes while charging full 6% interest on the face amount of the loans. The defendant cross-appealed from a denial of a recovery of usury on the serial notes except those in suit. The court held that defendant could have the benefit of forfeiture of interest but not the penalty under the then decisions (see John R. Alley & Co., v. Federal Nat. Bank, 124 F.2d 995, 997(3) (C.A. 10th 1942)), construing the federal statute, as applied to national banks (now 12 U.S.C.A. § 86), by way of a counterclaim. The court held that the transactions were usurious, 'The usury is plain...